The Quick Read: There is no stepped ladder of CLTV brackets on a standard FHA cash-out. One combined ceiling of 80% of the appraised value applies to the new loan plus any liens left in place, and the “tiers” borrowers hear about are really separate layers: how long you have owned and lived in the home, how much room your other liens use up, and where your loan-to-value lands for the annual mortgage insurance schedule. Size the loan from the ceiling down, and the cash is whatever remains.
What Does “CLTV Tier” Actually Mean Here?
It means a set of layers, not a set of brackets. Each layer changes either the value you borrow against, the room under the ceiling, or the insurance schedule.
Combined loan-to-value (CLTV) is the new first mortgage plus every other lien on the home, divided by the home’s value. HUD Mortgagee Letter 2019-11 set both the loan-to-value and the combined cap on FHA cash-out refinances at 80% of adjusted value. HUD’s press release on the change says the cut lined FHA up with the government-sponsored enterprise cash-out maximum. It also says FHA had already lowered the cap from 95% to 85% years earlier.
That history is why old numbers keep circulating. A page quoting 85% or 95% is describing an older case-number era. Across the wholesale programs this brokerage places FHA files with, the cash-out ceiling is 80% LTV on a home owned and occupied for 12 months before the case number is assigned. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
The three layers:
1. Ownership and occupancy layer. Decides whether a standard cash-out is available at all.
2. Lien layer. Decides how much of the 80% is already spoken for.
3. Insurance layer. Decides which annual premium schedule the new loan falls under, based on term, amount and LTV.
Key Terms Defined
Adjusted value: The property value the lender uses for the cap, built from the appraisal by an FHA roster appraiser, not from the price paid or an online estimate.
CLTV: Combined loan-to-value, meaning the first mortgage plus all subordinate liens measured against value.
Subordinate lien: A second mortgage, home equity loan or HELOC that sits behind the first mortgage.
Upfront premium: The one-time FHA mortgage insurance charge, 1.75% of the base loan, which is typically financed into the balance.
Net cash: What the borrower actually receives after payoffs, costs and any financed premium come out of the ceiling.
How Is the Loan Sized, Step by Step?
Start at the ceiling and subtract. The order matters, and skipping a step is how borrowers end up expecting cash that is not there.
1. Check the clock. The lender confirms that at least one borrower owned and lived in the home as a principal residence for 12 months before the case number was assigned. Not the closing date. The case number date.
2. Get the appraisal. The FHA roster appraiser’s value becomes the base. A different number from a listing site or a neighbor’s sale does not count.
3. Apply the cap. Multiply adjusted value by 80%. That is the largest combined debt the home can carry under the standard cash-out.
4. Count every lien. The cap is combined, so a second mortgage or HELOC that stays in place uses up room. It does not add room.
5. Subtract the payoffs and costs. Take out the existing first mortgage payoff, any lien you pay off, closing costs and the financed upfront premium.
6. What is left is your cash. Mortgage insurance applies to the whole new loan, not just the cash portion.
Here is the reconciliation in plain terms, using percentages only:
| Line | What it is |
|---|---|
| Ceiling | Adjusted value × 80% |
| Less | Existing first mortgage payoff |
| Less | Any lien you pay off at closing |
| Less | Closing costs and financed premium |
| Equals | Net cash to you |
Picture a first-time equity borrower whose home appraises at a certain value, and whose existing first mortgage balance is a bit over half of that value. The 80% ceiling leaves a gap of roughly a quarter of the home’s value before costs. Closing costs and the upfront premium then take a slice of that gap. The borrower who expected “80% of my value in cash” is off by the entire payoff. That is the most common misunderstanding on these files.
Does 80% Mean You Can Cash Out 80% of Your Value?
Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
No. The 80% is a ceiling on total debt, not a withdrawal limit. Your existing balance comes out of it first. Only the remainder is spendable.
The CFPB’s guide to using home equity notes that lenders typically require you to keep 10% to 20% of the home’s value as equity on cash-out loans, HELOCs and home equity loans. FHA’s 80% cap sits at the stricter end of that range, which means a full 20% stays in the home.
The appraisal also moves the cash directly. Because the cap multiplies the appraised value, a lower appraisal shrinks the ceiling and the cash dollar for dollar at the cap percentage. Appraisal reconsideration is a routine step when comps come in light, but it needs recent sales and condition support, not just a feeling that the home is worth more.
How Do Existing Liens Change the Number?
Every lien left open competes for the same 80%. Paying a second lien off at closing frees its room. Leaving it in place does not.
| Scenario | Effect on the ceiling |
|---|---|
| No second lien | Full 80% available to the new first mortgage |
| Second lien paid off at closing | Room restored, but the payoff comes out of cash |
| Second lien or HELOC stays open | Counts against the combined cap |
HELOCs add a wrinkle. Some guidance counts an open line at its credit limit, not its current balance, so an unused line can still eat room. Confirm that treatment in HUD Handbook 4000.1 for your file before relying on either reading. The handbook is the governing policy document, and HUD publishes its updates on its FHA INFO page.
The practical habit on these files: get the lien list and the payoff figures in hand before anyone talks about cash. A lien nobody mentioned shows up at title and changes the math late.
Where Does the General Rule Break?
Several edge cases change the answer. Name them early, because each one can remove the cash-out option entirely.
- Under 12 months of ownership or occupancy. A standard cash-out is not available. A recent buyer may qualify for a different refinance type or may need to wait. Do not assume cash-out access because you have equity on paper.
- Case number dates. Case numbers assigned before the September 2019 change fell under the older 85% rule. HUD’s own knowledge base still lists both, which is why stale figures keep surfacing.
- Occupancy type. FHA cash-out is for a principal residence. If the home is a rental or second home, occupancy decides the leverage, and this program is not the path.
- Manufactured homes. These carry their own installation and timing conditions. Check the handbook text for the specific unit.
- Hawaiian Home Lands (Section 247). HUD carved these mortgages out of the 80% reduction.
- Payment history. Lenders review recent mortgage payments closely on a cash-out. The exact test varies by lender and guideline, so confirm it on your file.
A note on seasoning confusion. The six-payment and 210-day tests belong to the FHA Streamline refinance, which is a different product. They are not the cash-out requirement, and mixing them up leads borrowers to think they are eligible when the 12-month clock says otherwise.
What About the Loan Limit and the Premiums?
Two ceilings can apply, and the lower one binds. The percentage cap is one. The county loan limit is the other. County limits change every year, so check the current figure for your county instead of relying on a number you saw somewhere. HUD also states that the combined first mortgage plus subordinate liens cannot exceed the Nationwide Mortgage Limit.
On mortgage insurance, the upfront premium is 1.75% of the base loan and is usually financed. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. HUD’s Mortgagee Letter 2023-05 is the source for the schedule. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years.
Because a cash-out at the 80% ceiling sits below 90%, the shorter premium duration is the one that typically applies to a loan sized at the cap. Financing the upfront premium still raises the balance, which leaves less cash from the same ceiling.
What Does the Lender Review Besides Equity?
Equity gets you to the table. Credit, income and the property decide the rest.
Across the wholesale programs this brokerage works with, FHA files start at a 580 decision score for the standard programs. Debt ratios start from a 31/43 base pair, housing over total, with no compensating factors. Documented compensating factors can push that to 40/50 at the top tier, and the automated finding governs most files. All of this is subject to lender guidelines and full file review.
The files that stall tend to fail on documents, not on math:
- Occupancy evidence for the full 12 months, such as employment records or utility bills.
- A complete lien list with payoff statements.
- Income documents that match the application.
- A property that meets FHA condition standards at appraisal.
Is Cash-Out the Right Move for a First-Time Equity Borrower?
Sometimes. The question is cost against purpose. A cash-out replaces your current loan with a larger one, so the payment may rise, the payoff timeline may stretch, and the terms reset. The CFPB guide says as much.
Debt consolidation is the most common use. The CFPB’s research on cash-out borrowers warns that turning unsecured debt into home-secured debt can put the home at risk if payments become unsustainable. It also finds that paying down debt only makes sense when the all-in cost of the refinance is below the cost of the debts retired. Card balances in that research tended to drift back toward earlier levels within a year.
Run both costs before you commit. Price the premium and the lien payoffs first. Promise yourself no cash figure until those are on paper.
If you are also weighing keeping your first mortgage and borrowing differently, see Lendmire’s piece Should a First-Time Equity Borrower Cash Out or Add a Rental HELOC, which covers the tradeoff between replacing a loan and layering one on.
The FHA cash-out refinance program is the starting point if the 12-month clock is met and the numbers hold up after payoffs and costs.
What If the Number Comes Up Short?
Shortfalls are common, and there are practical responses.
- Pay down or pay off a second lien. This frees room under the combined cap, though the payoff reduces your net cash.
- Wait out the clock. If you are inside 12 months of ownership or occupancy, time solves it.
- Request appraisal reconsideration. Document recent in-neighborhood sales and condition adjustments.
- Consider a different refinance. A rate-and-term refinance reaches 97.75% on a principal residence occupied for the previous twelve months, and an FHA Streamline needs no appraisal but does not take cash out.
- Shrink the ask. A smaller cash target may fit inside the ceiling once costs are counted.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Is there more than one CLTV tier on an FHA cash-out?
No. There is one combined cap of 80% of adjusted value. What changes are the value used, the liens counted and the insurance schedule, which is where the “tier” idea comes from.
Can a second mortgage or HELOC get me past 80%?
No. The cap is combined, so subordinate liens count against it. A lien left in place uses room. Paying it off at closing frees the room, but the payoff is taken from your cash.
I bought my home recently. Can I take cash out?
Usually not yet. A standard cash-out requires 12 months of ownership and occupancy as a principal residence before the case number. Other refinance types may be open to you sooner, subject to lender guidelines.
Does the appraisal really change my cash?
Yes. The cap applies to the appraised value, so a lower number lowers the ceiling and the cash directly. Reconsideration with solid recent sales can help.
Do the mortgage insurance premiums apply to the cash-out loan?
Yes. The upfront premium of 1.75% and the annual premium apply to the whole new loan, not just the cash portion. Financing the upfront premium reduces your net cash.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches, subject to lender guidelines and full file review. Nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see FHA loan programs.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD Archives press release PR 19-114
3. CFPB, Using home equity guide
4. HUD FHA INFO messages (Handbook 4000.1 updates)
5. HUD Mortgagee Letter 2023-05
6. CFPB, Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can a Conventional or FHA Borrower Do a VA Cash-Out in Year One? · How to Time a VA Cash-Out When Leaving a Conventional or FHA Loan · Can You Get an FHA Cash-Out After a Conventional Denial?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.